This overview addresses the judgment of the Supreme Court 356/2022 of 13th July which reaches a decision regarding the possible nullity of the meeting of partners of a Limited Company when the Chairman refuses the validity of the representation in the meeting on formal grounds.
The facts of the case are, in summary, the following: it is a matter of a Limited Company, the bylaws of which do not contain any regulation regarding the granting of voluntary representation for attending general meetings, although it reproduces the text of article 183 of the Spanish Companies Act (Ley de Sociedades de Capital – LSC), and furthermore the bylaws provide for the possibility of the partner being represented by a third party, under the formal condition that the representation is recorded in a public document specifically for the meeting in question.
One of the partners attended the meeting represented by a third party who did not meet any of the conditions which should be held by a representative as established in article 183 of the LSC, although said representative (the lawyer of the partner) held a private power of attorney specifically for the attendance of said meeting.
Another partner also attended represented by a third party with power of attorney in similar terms as the former.
The Chairman of the meeting denied the attendance and the vote of the represented partners under the consideration that the representations did not adjust to that established in the bylaws and the law.
On this basis and, consequently, due to not being able to participate in the meeting, the affected partners applied judicially for the nullity of the meeting and the agreements adopted therein, among other reasons, for the refusal of the representation granted to their lawyers when on previous occasions this had been allowed.
The court of first instance deemed that article 183 of the LSC had not been breached as the representatives of the partners did not meet any of the conditions that a representative of a partner should have in order to attend the general meeting of partners as established in said article; additionally, the power of attorney document provided was private and not public, as required by the bylaws and the law.
The judgment was appealed by the affected partner and the Provincial Court upheld the appeal, revoking the judgment of first instance. The appeal judgment highlighted the fact that the company bylaws did not contain any special clauses on the system of representation in general meetings, while the evidence provided made it clear that on previous occasions the attendance of general meetings without meeting the requirements established in article 183 of the LSC had been allowed, and that no partner had previously questioned this type of attendance. Taking into account these facts, the Court concluded that the action of the Chairman of the meeting, upon denying the representation of said partners was contrary to good faith.
The judgment was the object of appeal by the company before the Supreme Court, on the grounds of the breach of article 183 of the LSC. The argument was that said precept is imperative and that the company bylaws do not establish any requirements other than those provided for therein, therefore the Chairman of the meeting of partners acted correctly.
The Supreme Court started by reiterating in its judgment that generally the system of voluntary representation in the general meeting of limited companies has its own identity and is different to that of joint-stock companies, in as much as the former are closed commercial entities, thus the granting of powers of attorney only to a limited number of “trusted” persons is allowed, thus avoiding the presence of outsiders in the general meeting, although a few exceptions to this general rule must be considered.
The Supreme Court continues by recalling that judgment 191/2014 of 15th April established that the rules of voluntary representation in the general meeting of limited companies are of an imperative nature and may not be subject to disposition, unless the bylaws provide for a broadening of the condition of those persons to whom powers of representation may be granted. If this is not the case, representation will not be possible by a person who is not included in those mentioned in article 183 of the LSC, “although it may be a professional, with a special and limited power to attend the meeting in question”.
The matter dealt with in this judgment is whether the company (and specifically, the Chairman of the meeting) acted in bad faith in demanding the application of article 183 of the LSC in the challenged meeting, precisely at the time of the formal constitution thereof, that is to say, when the representative of the absent partner accredited his private special power for this meeting, when in previous cases representation of the same type had been allowed, and whereas on this occasion it had been refused, in a surprising and unexpected way.
It must be noted that the critical fact of the case amounts to that in previous meetings, another partner had attended represented by a third party with a mere private power of attorney document, a fact that was not denied nor disputed by the appellant company in cassation, instead it was simply kept silent.
The fact that in the past another partner had been validly represented by a third party who did not meet any of the conditions set forth in Article 183 of the LSC was not contested either.
The Supreme Court’s judgment specifies that in limited companies it is normal that, during long periods of time, persons who attend the meetings are always the same partners, meaning that in practice the demand for the requirements of representation adapt to these circumstances. When this is so, and the Chairman refuses the representation because it does not conform to legal or statutory provisions, when in the past, the same type of representation had been permitted, the Chairman operated contrary to his own acts (Judgment 483/2002, of 22nd May 2002); in other words, the precedent in fact validates the defect, which otherwise would have been accepted in order to refuse the representation. Taking into account this precedent, the refusal of the representation for formal reasons would equate to infringing upon the “rational and spiritual sense” behind the doctrine of the Supreme Court in this field.
Likewise, the bad faith of the Chairman of the general meeting who refused the representation is also reflected by the fact that the change in criterion took place just at the time that the meeting was constituted, with no opportunity for the partner concerned to react; on the other hand, if the Chairman had warned of the change in advance, with the object of avoiding misunderstandings in the conduct of the partners to be represented in the meeting, no abuse would have been committed and simply, by refusing the representation, he would have complied with legal and statutory provisions.
The judgment concludes by stating that the concurrence of good or bad faith in the allowance or refusal of a voluntary representation must be analysed on a case-by-case basis (Supreme Court Judgment 51/2011 of 21st February). As a rule of interpretation, it must be borne in mind that the requirements established in article 183 of the LSC imply a very intense restriction of the rights of the partner, and in view of this, when in previous meetings someone has been continuously allowed to represent a partner, and subsequently -and without previous announcement of the change in criterion- the Chairman of the meeting refuses the representation which had previously been recognised, this conduct must be understood to be contrary to the acts of the Chairman and the principle of legitimate trust. It is true that the precedent in itself does not constitute a binding source of law, and the allegation itself will be of little or no use when the reproachable act is contrary to the law or the company bylaws; but the frustration of a reasonable expectation of legality based on prior behaviour is key, that is to say, that after having generated trust, and the partners understanding that they could attend the general meetings with a certain type of representation (other than that provided for in the bylaws or by law), its refusal by the Chairman of the meeting without prior notice or room for manoeuvre by the partners must be understood as an act contrary to good faith.
Eduardo Vilá
Vilá Abogados
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7th of October 2022
